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UNITED
STATES � ANTI-DUMPING MEASURES ON
Report of the Panel (Continued) IV. LEGAL ARGUMENT 4.1 Article VI of GATT 1994 governs the use of anti-dumping measures by WTO Members.87 In the anti-dumping context, Article VI must be read in connection with the Anti-Dumping Agreement - which is formally entitled the Agreement on Implementation of Article VI of GATT 1994. The Anti-Dumping Agreement expressly "govern[s] the application of Article VI of GATT 1994" to all anti-dumping actions.88 Article VI and the Anti-Dumping Agreement are therefore "part of the same treaty" and an "inseparable package of rights and disciplines."89 Together, Article VI and the Anti-Dumping Agreement govern when and how anti-dumping duties may be imposed by any Member.
4.2 An understanding of Article VI and the Anti-Dumping Agreement in their proper context must begin with the fact that anti-dumping duties are a derogation from the main thrust of the WTO regime - which is to liberalize and promote trade.90 Although the GATT has from its inception allowed dumping to be offset if it causes or threatens material injury to a domestic industry, it has always narrowly circumscribed in Article VI both the circumstances in which and the extent to which anti-dumping duties may be imposed. Indeed, widespread concerns among the Contracting Parties (now, Members) about the detrimental effects of over-use and abuse of anti-dumping duties have led to ever tighter restrictions on their use.91
4.3 Thus, Article VI "should be interpreted as limiting the use of anti-dumping measures to the situations expressly foreseen in Article VI."92 Of course, an essential prerequisite for the imposition of anti-dumping duties is that "'dumping' within the meaning of the definition of Article VI:1 has to be found in the first place."93 This requirement has been made explicit by the first sentence of Article 1 of the Anti-Dumping Agreement, which provides that:
In other words, the WTO Agreements forbid the imposition of anti-dumping measures unless they are imposed pursuant to investigations that are conducted strictly in accordance with WTO disciplines. The US failure to satisfy the requirements of any Article of the Anti-Dumping Agreement therefore results in a violation of Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994. 4.4 Under these disciplines, the authority to impose anti-dumping duties is not only preconditioned on the existence of "dumping," it is also limited to the extent of dumping properly found.94 Thus, the calculation of the extent of "the price difference" between the export price and normal value (i.e., the "dumping margin"),95 if any, is a critical aspect of an anti-dumping investigation. Consequently, the calculation of the "dumping margin" is subject to numerous substantive and procedural disciplines in Article VI of GATT 1994 and the Anti-Dumping Agreement. 4.5 As discussed below, the actions by the United States in the SSPC and SSSS cases failed to comply with the rules and procedures for calculating dumping margins, and this failure led the United States to impose improperly high anti-dumping duties. Since Article 3.8 of the DSU provides that "[i] n cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification and impairment," it is clear that the United States, by this failure, has nullified or impaired benefits accruing to Korea under the WTO Agreements.
4.6 As discussed in the Statement of Facts, during the period of investigation, POSCO made several sales of SSPC and SSSS to a US customer (referred to here as the ABC Company) that later declared bankruptcy. In the preliminary determinations for both SSPC and SSSS, the United States excluded these aberrant sales from its calculation of export price (and thus from the comparison of export price to normal value).96
4.7 In the final determinations, however, the United States reversed position. It declared that the amounts due POSCO by the ABC Company were "bad debts" and that the cost of this "bad debt" should be treated as a "direct selling expense" and deducted as an adjustment from the prices of POSCO 's US sales. This adjustment increased the price difference between export price and normal value and hence increased the dumping margins found by the United States.97
4.8 In essence, the United States penalized POSCO for an event that occurred after POSCO made its sales, that was utterly beyond POSCO 's control, and of which POSCO did not know (and could not have known) at the time it made its sales and fixed its prices. As discussed below, such a methodology is inconsistent with the requirements governing dumping calculations under the WTO Agreements and it is unfair. Specifically, the United States' treatment of the non-payment by a US customer is inconsistent with:
4.9 Before examining those specific requirements, however, it is important to consider the consequences of permitting the approach adopted by the United States in the SSPC and SSSS cases. That approach would make it impossible for an exporter to avoid the risk of a dumping determination. Regardless of the exporter's pricing policies, there would always be the risk that later events, entirely beyond the exporter's control, would result in findings of dumping. Suppose, for example, that an exporter sells its merchandise in the United States and in its home market at exactly the same prices and under exactly the same terms and conditions. Clearly, there would be no "price differences" within the meaning of Article VI of GATT 1994. Even so, if it happens that one of the exporter's US customers goes bankrupt after the sale is made, under the methodology used in the SSPC and SSSS cases the United States would find that all of the exporter's US sales were dumped, and it would therefore impose anti-dumping measures on all of the exporter's US sales. Such a result cannot be consistent with the object and purpose of either Article VI of GATT 1994 or the Anti-Dumping Agreement.
4.10 Article VI of GATT 1994, which authorizes WTO Members to impose anti-dumping duties under certain circumstances, provides that the existence of "sales below normal value" (or "dumping") is normally to be determined based on a comparison of the export price to the comparable price in the exporting country (or "home market"). Thus, paragraph 1 of Article VI states that:
As this passage indicates, a calculation of a dumping margin must ordinarily focus on a comparison of the prices.98 If the export price is less than the comparable home-market price, then the exporter is dumping. On the other hand, if the export price is greater than or equal to the comparable home-market price, then there is no dumping. 4.11 The comparison of prices is, therefore, the key to a proper determination of dumping under GATT 1994. In recognition of the centrality of the price comparison, GATT 1994 expressly limits the adjustments that can be made to the prices used in the comparison to those adjustments that reflect "differences affecting price comparability." 4.12 The basic framework adopted by Article VI:1 of GATT 1994 has been maintained in the Anti-Dumping Agreement. Thus, Article 2.1 of the Anti-Dumping Agreement confirms that the normal focus of an anti-dumping investigation is a comparison of prices in the importing country with prices in the exporter's home market:
Moreover, Article 2.4 of the Anti-Dumping Agreement confirms that, in order to achieve a fair comparison, adjustments may only be made for differences that affect price comparability. Thus, Article 2.4 provides that:
4.13 Under these provisions, the focus of an anti-dumping investigation must be on the exporter's prices. Adjustments to the exporter's prices are permitted if, and only if, they account for differences in the factors that affect those prices.
4.14 As mentioned, Article VI:1 of GATT 1994 specifically permits adjustments for "differences in conditions and terms of sale" and for "differences in taxation. " Article 2.4 of the Anti-Dumping Agreement follows GATT 1994 in specifically allowing adjustments for "differences in conditions and terms of sale" and for differences in "taxation," and it also specifically allows additional adjustments for differences in "levels of trade, quantities, [and] physical characteristics." After the list of enumerated factors deemed to affect price comparability, GATT Article VI:1 contains a closing phrase that authorizes adjustments for "other differences affecting price comparability." Article 2.4 of the Anti-Dumping Agreement contains a similar closing phrase: it authorizes adjustments only for "other differences which are also demonstrated to affect price comparability."
4.15 Significantly, a comparison of the texts of GATT Article VI:1 and Article 2.4 of the Anti-Dumping Agreement shows that the Anti-Dumping Agreement contains a requirement that had not existed in the original GATT: factors that are not expressly enumerated in Article 2.4 must not only "affect price comparability," but they must be "demonstrated" to do so. Any interpretation of Article 2.4 that ignored the words "which are also demonstrated" would run afoul of the rule that WTO Agreements must not be construed so as to render any words superfluous.99
4.16 Therefore, under Article 2.4 of the Anti-Dumping Agreement, an administering authority may not make an adjustment for "other differences" (i.e., differences other than those enumerated in Article 2.4) unless it is first "demonstrated" that these "other differences" affect price comparability.
4.17 As mentioned, the ABC Company failed to pay POSCO after receiving shipments of SSPC and SSSS and, in the anti-dumping investigations, the United States adjusted the export price for POSCO's US sales to account for that non-payment.100 The ABC Company's non-payment does not fall within any of the categories of differences for which adjustments are specifically permitted by Article VI:1 of GATT 1994 or Article 2.4 of the Anti-Dumping Agreement. The non-payment clearly is not a difference in (i) the conditions and terms of sale, (ii) taxation, (iii) levels of trade, (iv) quantities, or (v) physical characteristics.
4.18 Consequently, an adjustment for this non-payment could be justified only if non-payment is an "other difference[] affecting price comparability." No such justification is tenable, however, in this case.
4.19 Therefore, the adjustment made by the United States to the export price to account for the failure of the ABC Company to pay POSCO is inconsistent with Article VI:1 of GATT 1994 or Article 2.4 of the Anti-Dumping Agreement. The resulting anti-dumping measures violate Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.
4.20 As discussed above, it was improper for the United States to make any adjustment to account for the ABC Company's non-payment to POSCO, because non-payment is not a "difference affecting price comparability" for which adjustments are allowed under Article VI:1 of GATT 1994 and Article 2.4 of the Anti-Dumping Agreement. But if, by some chance, the Panel were to conclude that Article VI:1 and Article 2.4 permit investigating authorities to make an adjustment to account for a customer's non-payment, the way in which the actual adjustment was made by the United States in the SSPC and SSSS cases would nevertheless have to be found inconsistent with the requirements of Article VI:1 and Article 2.4.
4.21 The United States did not limit its adjustment to the unpaid sales to the ABC Company. Rather, the United States allocated the cost of those unpaid sales over all of POSCO's sales to all of its US customers during the investigation period, and then deducted the allocated amount from the sales price for each and every US sale as an adjustment to the export price. In other words, the cost of the non-payment by the ABC Company was deducted from the prices of all of POSCO's US sales - including sales to other customers who had paid for their purchases . As a result, the export prices for all of POSCO's US sales were lowered, and the dumping margins (which equal the difference between the "normal value" and the adjusted export price) were increased for all US sales.103
4.22 Assuming arguendo that a non-payment by a customer could be considered a "difference affecting price comparability," the adjustment would have to be limited to the particular sales for which the non-payment affected price comparability. The blanket adjustment to all export sales (including sales to customers that paid in full) cannot be consistent with the requirements of Article VI:1 of GATT 1994 and Article 2.4 of the Anti-Dumping Agreement for the following reasons.
4.23 The ABC Company's failure to pay POSCO for its purchases did not affect - and they were not "demonstrated" to affect - the price comparability of POSCO's sales to other US customers who did pay. Therefore, the DOC's adjustments relating to the ABC Company's non-payment were not permitted under Article VI:1 of GATT 1994 or Article 2.4 of the Anti-Dumping Agreement. The resulting anti-dumping duties therefore violate Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.
4.24 As discussed above, the adjustments made by the United States to account for the non-payment by the ABC Company were not consistent with the technical rules of GATT 1994 and the Anti-Dumping Agreement. But the treatment of these sales by the United States suffered from another fundamental flaw: It simply was not fair. In essence, the United States penalized POSCO for an event - the bankruptcy of a customer after POSCO had made its sales to that customer - that was utterly beyond POSCO's control. Such an unfair result cannot be reconciled with the requirements of GATT 1994, as applied by the Anti-Dumping Agreement.
4.25 The Anti-Dumping Agreement explicitly requires that the price comparisons used by the administering authorities to determine whether or not dumping has occurred must be "fair." Thus, Article 2.4 of the Agreement explicitly requires that: "A fair comparison shall be made between the export price and the normal value."
4.26 The fairness requirement of Article 2.4 imposes important substantive disciplines on the use of anti-dumping measures. The Anti-Dumping Agreement requires the administering authorities to meet the fairness requirement, along with other technical and procedural requirements. "Fairness" is a well-understood concept in international law and in the interpretation of treaties.104
4.27 Although it may be difficult to develop a general definition of "fairness" in the abstract, the judicial decisions of the United States help illuminate what "fairness" requires in the context of an anti-dumping investigation. They have recognized that it is "unreal, unreasonable and unfair" for a finding of dumping to be based on "a factor beyond the control of the exporter."105 In other words, it is fundamentally unfair to attribute factors beyond the control of an exporter against the exporter as evidence of dumping.
4.28 As discussed in the Statement of Facts, the United States effectively penalized POSCO for the ABC Company's non-payment. Specifically, the United States reduced the export price for all of POSCO's US sales to account for the ABC Company's failure to pay. It then compared the prices charged by POSCO in the home market with this reduced export price, thus creating or inflating the dumping margins.106
4.29 This adjustment to account for the non-payment by the ABC Company denied POSCO the benefit of a "fair comparison" between export price and normal value, as required by Article 2.4 of the Anti-Dumping Agreement, in at least two respects.
4.30 The adjustment made by the United States to the export price for all of POSCO's US sales based on the non-payment by the ABC Company was, thus, inconsistent with the "fair comparison" requirement of Article 2.4 of the Anti-Dumping Agreement. The resulting anti-dumping measures therefore violated Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.
4.31 As discussed above, Article 2.4 of the Anti-Dumping Agreement explicitly requires that the comparisons used by the administering authorities to determine existence of dumping must be "fair." This fairness requirement applies, of course, to the adjustments that are made to export prices and normal value. It also applies to the sales that are included in the comparison of export price and normal value. When an exporter has atypical sales in one market, and the inclusion of those sales in the dumping calculations would distort the results, then the inclusion of those sales is inconsistent with the "fair comparison" requirement of Article 2.4. In other words, the "fair comparison" required by Article 2.4 cannot rest on a calculation of the export price or normal value that is distorted by the inclusion of atypical sales.
4.32 The United States has acknowledged that the inclusion in dumping calculations of sales that are "extraordinary for the market in question" can "lead to irrational or unrepresentative results."110 For that reason, the United States routinely excludes such sales from its analysis of both export price and normal value - where "inclusion of � sales which are clearly atypical would undermine the fairness of the comparison ... ."111
4.33 The US sales for which POSCO's customer did not pay were clearly atypical. In fact, the United States explicitly admitted this point. In the preliminary determinations for both SSPC and SSSS, the United States concluded that these unpaid sales were "atypical and not part of POSCO's normal business practice."112
4.34 Therefore, the inclusion of the unpaid sales to the ABC Company in the calculation of export price was inconsistent with the "fair comparison" requirement of Article 2.4 of the Anti-Dumping Agreement. The resulting anti-dumping measures thus violated Article 1 of the Anti-Dumping Agreement and Article VI of GATT 1994.
87 As recognized by the Panel in United States - Anti-Dumping
Act of 1916 (Complaint by the EC), "Article VI does not regulate the
practice of dumping itself, but the anti-dumping activities of Members.... [It]
concentrates on what Members may do in order to counteract dumping." United
States - Anti-Dumping Act of 1916 (Complaint by the European Communities) ,
Report of the Panel, WT/DS136/R, 31 Mar. 2000, not yet adopted, at para. 6.103
("1916 Act I").
88 Anti-Dumping Agreement, art. 1.
89 1916 Act I, at para. 6.97 (following Argentina - Safeguard
Measures on Import of Footwear, Report of the Appellate Body, adopted on 12 Jan.
2000, WT/DS/121/AB/R, at para. 81, and India - Quantitative Restrictions on
Imports of Agricultural Textile and Industrial Products, Report of the Panel,
adopted on 22 Sept. 1999, WT/DS90/R, at paras. 5.18-5.19). See also id. at
paras. 6.195 (the Anti-Dumping Agreement " is essential for the interpretation
of Article VI"), 6.197 (the provisions of the Anti-Dumping Agreement are
"essential elements" of the "context" of Article VI).
90 See John H. Jackson, World Trade and the Law of GATT, 411
(1969) ("Article VI of GATT treats two subjects: antidumping duties and
countervailing duties. In both cases Article VI is something of an anomaly: in
essence it is an "exception" to GATT, allowing certain measures that would
otherwise be a violation of GATT."); cf. United States - Countervailing
Duties on Fresh, Chilled and Frozen Pork from Canada, Report of the Panel,
DS7/R -3 8S/30, adopted on 11 July 1991, para. 4.4 ("Article VI:3, as an
exception to basic principles of the General Agreement, ha[s] to be interpreted
narrowly�."); 1916 Act I, at para. 6.202 & n.443 (quoting Jackson and
treating anti-dumping measures as an exception to the MFN and tariff binding
obligations).
91 See, e.g., Negotiating Group on MTN Agreements and
Arrangements, Meeting of 6 March 1987, Note by the Secretariat, MTN.GNG/NG8/1,
23 March 1987, at para. 8 ("Several delegations expressed their dissatisfaction
with [the Tokyo Round Anti-Dumping Code]. Reference was made to the problem of
�trade harassment� in the area of countervailing and anti-dumping duties and it
was suggested that the application of certain provisions of the Codes had in
some cases led to increased protectionism.").
92 1916 Act I, at para. 6.114.
93 See id. at para. 6.105; see also European Communities -
Imposition of Anti-Dumping Duties on Imports of Cotton Yarn from Brazil,
Report of the Panel, ADP/137, adopted on 30 October 1995, at para. 585 ("Article
1 [of the Tokyo Round Anti-Dumping Code] provided that anti-dumping duties could
not be applied prior to determination of dumping�.") (emphasis omitted).
This requirement was first recognized as long ago as 1955.
See Swedish Anti-Dumping Duties, Report of the Panel, L/328 - 3S/81,
adopted on 26 Feb. 1955, at para. 22 ("The Panel agreed that if the Swedish
Decree was being applied in such a manner as to impose an anti-dumping levy in
the absence of dumping practices, the Italian Government would be deprived of
the protection it would reasonably expect from the terms of Article VI of the
Agreement and that it could claim an impairment of benefits.").
Cf. United States - Anti-Dumping Duty on Dynamic Random
Access Memory Semiconductors (DRAMS) of One Megabit or Above from Korea ,
Report of the Panel, WT/DS99/R, adopted on 19 March 1999, para. 6.43 ("The
necessity of the continued imposition of the anti-dumping duty can only arise in
a defined situation pursuant to Article 11.2: viz to offset dumping.").
94 See GATT 1994, art. VI:2 ("In order to offset or prevent
dumping, a [Member] may levy on any dumped product an anti-dumping duty not
greater in amount than the margin of dumping in respect of such product.");
Anti-Dumping Agreement, art. 9.3 ("The amount of the anti-dumping duty shall not
exceed the margin of dumping as established under Article 2."); see also
Anti-Dumping Agreement, art. 11.1 ("An anti-dumping duty shall remain in force
only as long as and to the extent necessary to counteract dumping which is
causing injury.").
95 See GATT 1994, art. VI:2 (defining the "margin of dumping" as
"the price difference determined in accordance with the provisions of paragraph
1," i.e., the difference between the export price and normal value).
96 See paras. 3.30 - 3.36 supra.
97 See paras. 3.37 - 3.39 supra.
98 The alternative to price comparison provided by Article VI
and the Anti-Dumping Agreement, which allows comparison of export price to cost
of production when home-market or third-country prices cannot be used, is not at
issue in the SSPC and SSSS cases.
99 See United States - Standards for Reformulated Gasoline,
Report of the Appellate Body, WT/DS2/AB/R, adopted on 20 May 1996, at 22 ("An
interpreter is not free to adopt a reading that would result in reducing whole
clauses or paragraphs of a treaty to redundancy or inutility.").
100 See paras. 3.30 - 3.39 supra.
101 The United States admitted in its final determinations that
"at the time [the sales] were made, POSCO was not aware that the customer would
declare bankruptcy." SSPC Final Determination, ROK Ex. 11, at 15449; SSSS Final
Determination, ROK Ex. 24, at 30673-74.
102 This conclusion is reinforced by an examination of the
adjustments that are specifically enumerated by Article VI:1 of GATT 1994 and
Article 2.4 of the Anti-Dumping Agreement. All of the "differences" for which
adjustments are specifically permitted under those provisions (i.e., for
conditions and terms of sale, taxation, levels of trade, quantities and physical
characteristics) are "differences" about which the seller would know at the time
it entered into its sales agreements and set its prices. In keeping with the
ejusdem generis doctrine - which provides that "general words following �
special words are limited to the genus indicated by the special words" - the
phrase that allows adjustments for "other differences affecting price
comparability" must also be limited to "differences" about which the seller
would know at the time it entered into its sales agreements and fixed its
prices. See Ian Brownlie, Principles of Public International Law, 634 (5th ed.
1998).
103 See para. 3.39 supra.
104 To give substance to the Anti-Dumping Agreement�s fairness
requirement, we have attached, as ROK Ex. 54, a memorandum of law prepared by
Professor Thomas M. Franck, the Murry and Ida Becker Professor of Law at New
York University and the President of the American Society of International Law
(the "Franck Memorandum"). Professor Franck is a recognized expert on
international law and institutions and the author of a recent treatise entitled
Fairness in International Law and Institutions. For the reference of the
Panel, Professor Franck�s curriculum vitae is attached as ROK Ex. 55.
The Franck Memorandum reviews numerous contemporary legal
instruments that use the word "fair" or similar terms. It concludes that the
concept of fairness is " well-established in international law and practice" and
that its inclusion in a treaty text signifies that the parties intend for the
text to be construed, by the parties themselves and by dispute settlement
tribunals, to secure a fair result in all cases.
The Franck Memorandum specifically addresses the
responsibility of a WTO panel to decide whether the price comparison in an
anti-dumping investigation was "fair," and not merely whether the investigation
was technically compliant with other aspects of the Anti-Dumping Agreement,
calling this the " most fundamental[]" responsibility of the panel:
By entering upon a treaty in which such a term as �fair
comparison� is used, WTO Members have formally invited �fairness discourse�
into the evaluation of anti-dumping measures and they should be taken to
have intended that the WTO dispute resolution process would develop, case by
case, reasonable parameters and rules by which to determine in similar cases
the applicable factors or standards by which a �comparison�s fairness� can
be measured. Thus, by requiring that the price comparison in an
anti-dumping investigation must be �fair,� Article 2.4 of the WTO
Anti-Dumping Agreement calls for a WTO panel to determine not only whether
the anti-dumping measures at issue result from an anti-dumping investigation
that satisfied the substantive and procedural requirements spelled out
elsewhere in the same Agreement (including elsewhere in Article 2.4), but
should also - and most fundamentally - determine whether the comparison of
export price to normal value was �fair.� (emphasis added) Franck Memorandum, ROK Ex. 54, at 1-2.
105 Melamine Chemicals v. United States, 732 F.2d 924, 933
(Fed. Cir. 1984) (ROK Ex. 56) (emphasis added).
106 See para. 3.39 supra.
107 It should not be surprising that a violation of the
adjustment requirements of Article 2.4 also states a violation of the "fair
comparison" requirement of Article 2.4. Indeed, one may view the adjustment
requirements as a subset of the "fair comparison" requirement.
108 See paras. 3.30 - 3.36 supra.
109 Melamine Chemicals v. United States, ROK Ex. 56, at
933 (emphasis added).
110 Statement of Administrative Action for the Uruguay Round
Agreements, ROK Ex. 34, at 164.
111 The US anti-dumping statute specifically directs the DOC to
exclude any home-market sales that are "outside the ordinary course of trade"
from its calculation of normal value. The US statute does not contain an
explicit provision directing the DOC t o exclude such sales from the calculation
of the export price. However, the US Court of International Trade has affirmed
that the DOC "has the discretion to disregard certain US pricing data if
�inclusion of certain sales which are clearly atypical would undermine the
fairness of the comparison of foreign and US sales." Chang Tieh Industry Co.,
Ltd. v. United States, ROK Ex. 35, at 145, quoting Ipsco, Inc. v. United
States, 714 F. Supp. 1211, 1217 (Ct. Int�l Trade 1989). See also
Asociacion Colombiana de Exportadores v. United States, ROK Ex. 36, at 1126.
In accordance with this principle, the DOC has, in at least
one past case, excluded from its analysis US sales for which payment was never
received because of the customer�s bankruptcy, on the ground that the sales were
not "representative." See Neoprene Laminate from Taiwan, ROK Ex. 37, at 37194.
112 SSPC Preliminary Analysis Memorandum, ROK Ex. 5, at 3; SSSS
Preliminary Determination, ROK Ex. 16, at 140.
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